A billion-dollar Covid-19 deal linked to Kenya attracted the attention of US regulators

The controversy has raised questions about the lack of transparency in Covid-19 procurement measures and contracts. …

The Covid-19 pandemic has further exposed corruption in African governments, as numerous reports emerge from procurement deals struck under shady circumstances. In South Africa, there are accusations of the misuse of $900 million in public funds meant for fighting the pandemic. In Uganda, four top officials were arrested on suspicion of inflating prices for Covid-19 relief food, costing the government at least $528,000.

In Kenya, citizens have protested allegations of corruption in the procurement and supply of Covid-19 equipment worth $71.96 million by a government agency. But the latest scandal to envelop the country has had international implications, pulling in a Canadian firm and American regulators.

In March, news broke that the Kenyan government had engaged a Canadian company called Kallo in a billion-dollar contract to build mobile clinics and upgrade the country’s hospitals to control Covid-19. The US Securities Exchange Commission would go on to temporarily suspend trading of shares in the company, citing concerns about the accuracy of this information.

The alleged deal has raised questions about the lack of transparency in the east African country’s procurement processes, particularly during emergencies.

Kallo makes claims in regulatory filing

In a recent Form 10-K filing, an annual report made by public companies to the SEC about their financial performance, Kallo reported that Kenya’s finance and health ministries contracted with Kallo and a Spain-registered company called Techno-Investment Module in June last year to strengthen healthcare infrastructure in the country “and build a robust, sustainable healthcare ecosystem.” This would be done through the implementation of “Kallo Integrated Delivery Systems,” which include mobile clinics, prefabricated modular healthcare units, and clinical and administrative command centers.

A contract for this project, attached to a previous filing, notes that the first of the project’s three sections will be to combat Covid-19. Kallo would implement the project while Techno-Investment Module would provide the financing in the form of a €1.07 billion ($1.3 billion) loan for Kenya for the first phase.

After news of the alleged deal broke, Kenya’s finance minister, Ukur Yatani, denied that the country had entered a contract with Kallo, terming the media report “erroneous and alarming.” He said he had written an official complaint to the SEC, and days later, the commission suspended trading in Kallo’s shares for 10 business days. It cited questions it had about the accuracy of statements the company had made in filings with the commission, including agreements it said it has entered relating to healthcare infrastructure projects in several African countries. (In the filing, the company also announced similar deals with Eswatini, Ethiopia, Mozambique and Eritrea during the Covid-19 pandemic.)

“The Commission has serious concerns, for example, about the accuracy of the Company’s claim that it has entered into a contract with the Republic of Kenya to establish a comprehensive healthcare structure,” the SEC said.

Kallo did not respond to a request for comment from Quartz.

The suspension ended on April 7, and trading in Kallo’s shares resumed. The SEC did not release any findings of its investigation into Kallo’s claims to Quartz, because it doesn’t comment publicly on the status of a company after suspension.

Questions about transparency in procurement

The controversy over whether or not Kenya had indeed entered in the multi-million dollar deal raised questions about the lack of transparency in Covid-era government contracts in Kenya and other African countries. With cloudy procurement processes and broad mechanisms for emergency procurement, some African countries risk entering suspect deals under the guise of addressing a health emergency.

Sheila Masinde, executive director of Transparency International Kenya, says Kenya needs to implement an open contracting system—defined as publishing and using open, accessible and timely information on public contracting—to allow citizens will  to track information.

“The fact that we don’t have up-to-date information on all these contracts that have been entered into for Covid-19 management, then of course citizens will not be able to take [the government’s] word, that ‘For sure, you know, guys rest easy,’ that there is no commitment that has been made of this kind.’” she says.

She calls for the government to adopt open procurement processes and make specific regulations governing emergency procurement.

Since 2018, Kenya has had a portal for government ministries, departments and agencies to publish procurement information monthly, but it isn’t timely and conclusive, offering little information on the actual procurement process—for example how a tender was evaluated and how participants bid. Additionally, more than 40% of the government bodies don’t publish their procurement information on the portal, according to a report by the Public Procurement Regulatory Authority. The alleged Kallo deal does not appear in the portal.

Last year, following public outcry over the alleged misuse of Covid-19 funds meant to purchase medical supplies, president Uhuru Kenyatta directed the health ministry to develop a mechanism to make procurement information available online, including details about the procurement chain, how a tender has been evaluated, and which participants bid. Other government departments, he said, would follow. This is still in the works.

Kenyan law prescribes direct procurement when there is “urgent need,” meaning where there is an imminent or actual threat to public health, welfare, safety or damage to property, such that engaging in normal procurement methods would not be practical. Masinde calls for rules around “urgent need” procurement to ensure that due process is followed and that it’s done with transparency and accountability.

The Public Procurement Regulatory Authority did not respond to a request for comment.

Kenya reported its first Covid-19 case in March 2020. So far, the country has experienced three waves of the virus, reporting 163,976 cases and almost 3,000 deaths.

“[Procurement is] a high-risk function and we are also in a high-risk moment as a country and as a world,” says Masinde. “So it was obvious that there would be people who would take advantage of this particular crisis to enter into dubious deals.”

Wealthy countries including the UK and Germany have also faced backlash for using emergency procurement with little transparency under the guides of the coronavirus pandemic. However this is a particularly sensitive issue in Kenya, where protests have been ongoing over the country’s debt load and corruption.

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